Unformatted text preview: your budget for the month called
for $1,000 in marketing but you spent $1,500, you will need to adjust the accounts in some format in order
to accommodate that extra $500 spent. But the accounts are also adjusted for other transactions. So, every
time you make a sale, the inventory of that item or items decreases and the amount of your cash increases.
Various ledgers and journals are used to track these changes. Those ledgers and journals are then used to
create the financial statements listed above.
While these changes are not reflected in the budget, they do affect the budget
because you might need to make adjustments to where your funds are allocated. Accounting has one very fundamental equation: Please click the advert Total Assets = Total Liabilities + Equity Download free ebooks at bookboon.com
17 Financial Information Related to the Budget Managing Budgets In other words, what the company has in value is the difference between what they own and what they
owe. It works the same for you as an individual. Your net worth is the total of your assets minus any debt
that you owe. For a business, there are usually just more assets and liabilities to calculate.
To see this more easily, just rewrite the equation as:
Equity = Total Assets – Total Liabilities
In either version of the equation, what will happen when a transaction occurs? At least two of the factors
will change for any transaction. So, for example, if your equity increases, your assets must have increased
or your liabilities must have decreased – or both. Accounting is the process of tracking all of these
changes in the financial equation. The accountant or bookkeeper must then be able to record the
information and report the information in ways that are helpful for those that are making decisions about
the operations and direction of the organization. In one view, you could say that the budget is a prediction
of how the sum total of these changes will occur over the budget year, and the financial reports you create
during the year tell you how on-target your predictions were.
In one view, you could say that the budget is a prediction of how the sum t...
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